Accounting conservatism: A life cycle perspective

This paper investigates whether a firm's life cycle stage affects its reporting conservatism in the cross-section. We use two measures of reporting conservatism used in Givoly and Hayn (2000): the level of non-operating accruals and the market-to-book ratio (unconditional conservatism); and the...

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Bibliographic Details
Published in:Advances in accounting 2018-03, Vol.40, p.76-88
Main Authors: Hansen, James C., Hong, Keejae P., Park, Sang-Hyun
Format: Article
Language:English
Subjects:
Accounting conservatism
Conditional conservatism
Firm life cycle
Unconditional conservatism
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Summary:This paper investigates whether a firm's life cycle stage affects its reporting conservatism in the cross-section. We use two measures of reporting conservatism used in Givoly and Hayn (2000): the level of non-operating accruals and the market-to-book ratio (unconditional conservatism); and the conservatism measure suggested by Basu (1997) (conditional conservatism). Firms are classified annually into life cycle stages using procedures proposed by Dickinson (2011). We find that unconditional reporting conservatism decreases over life cycle stages, but do not find evidence that conditional reporting conservatism is associated with life cycle stages. Our findings complement Givoly and Hayn (2000) and have implications for financial statement analysis and future research on accounting conservatism.
ISSN:0882-6110
2590-1699
DOI:10.1016/j.adiac.2017.10.001